Lecture 4

ISS323
IS ANALYSIS
 
Feasibility Analysis
 FEASIBILITY ANALYSIS
 Feasibility analysis guides the organization in determining
whether to proceed with a project.
 Feasibility analysis also identifies the important risks
associated with the project that must be managed if the project
is approved.

1-3
(cont’d)
 As with the system request, each organization has
its own process and format for the feasibility
analysis, but most include techniques to assess
three areas:
o Technical feasibility
o Economic feasibility
o Organizational feasibility
 The results of evaluating these three feasibility
factors are combined into a feasibility study
deliverable that is submitted to the approval
committee at the end of project initiation.
1-4
 Technical Feasibility
 Technical feasibility is the extent to which the system can be
successfully designed, developed, and installed by the IT
group.
 It is, in essence, a technical risk analysis that strives to answer
the question: “Can we build it?”

1-5
(cont’d)
 Risks can endanger the successful completion
of a project. The following aspects should be
considered:
o Users’ and analysts’ should be familiar with the application.
o Familiarity with the technology
o Project size
o Compatibility of the new system with the technology that already
exists

1-6
 Economic Feasibility
 Economic feasibility analysis is also called a cost-benefit
analysis, that identifies the costs and benefits associated with
the system.
 This attempts to answer the question: “Should we build the
system?”

1-7
 Cash Flow Analysis and Measures
 IT projects involve an initial investment that produces a steam
of benefits over time, along with some on-going support costs.
 Cash flows, both inflows and outflows, are estimated over
some future period.

1-8
Simple cash flow projection

1-9
 Common methods for evaluating a project’s
worth
 Return on Investment (ROI)
ROI=(Total Benefits – Total Costs)/Total Costs
 Break-Even Point (BEP)

1-10
 Discounted cash flow technique
 Discounted cash flows are used to compare
the present value of all cash inflows and
outflows for the project in the today’s dollar
terms.

 Net present value (NPV): the difference

between the total PV of the benefits and the
total PV of the costs.
1-11
 Steps to conduct an economic feasibility
analysis
1. Identify Costs and Benefits
2. Assign Values to Costs and Benefits
3. Determine Cash Flow
4. Assess Project’s Economic Value
- ROI
- BEP
- NPV

1-12
 Identify Costs and Benefits
 The costs and benefits and be broken down in
to four categories:
o Development costs
o Operational costs
o Tangible benefits
o Intangibles

1-13
Assign Values to Costs and Benefits
 Once the types of costs and benefits have been identified, the
systems analysts needs to assign specific money values to them.

© Copyright 2011 John Wiley & Sons, Inc. 1-14

 Determine Cash Flow
 A formal cost-benefit analysis usually contains costs and
benefits over a selected number or years to show cash flow
over time.
- Determine ROI
- Determine BEP
- Determine NPV

1-15
 Organizational Feasibility
 Organizational feasibility of the system is how well
the system ultimately will be accepted by its users
and incorporated into the ongoing operations of the
organization.
 There are many organizational factors that can have
an impact on the project, and seasoned developers
know that organizational feasibility can be the most
difficult feasibility dimension to assess.
 In essence, an organizational feasibility analysis is to
answer the question “If we build it, will they come?”

1-16
(cont’d)
 One way to assess the organizational feasibility is to
understand how well the goals of the project align
with the business objectives and organizational
strategies.
 A second way to assess the organizational feasibility
is to conduct stakeholder analysis.
 A stakeholder is a person, group, or organization that
can affect a new system
- Project champion
- System users
- Organizational management
- Other stakeholders
1-17
 SUMMARY
 A Feasibility Analysis is used to provide more detail about
the risks associated with the proposed system.

1-18